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The Sun is Shining on Mutual Fund Companies

According to Moody’s, the third quarter could be upbeat for mutual fund companies.

Why?

After the Brexit vote near the end of June, the market has shown relatively low volatility. Coupled with the recent good performance in the stock market, it has led to better inflows for mutual funds in the third quarter. The initial spike in volatility right after the vote scared investors; however, as the market has remained relatively stable investors seem to slowly be coming back.

Economic stability has also lead to an improvement in investor confidence, contributing to increasing inflows in the market. As confidence levels rise, investors are often more willing to take risks which some believe is an indicator that inflows will continue to increase throughout the 3rd quarter.

So the market’s out of the clear! ...Right?

Even though earnings have risen almost 1.5% for managers we’re not in the clear just yet. Actively managed funds are still lagging behind their passively managed counterparts in terms of inflows. Investor confidence is up, but without knowledge of investors’ patience, or lack thereof, we can’t be 100% sure of how the market will continue to react.

Not all mutual fund companies are created equal.

While mutual funds look like they’re going to have a good third quarter, Moody’s did find that some mutual funds could be looking at a less than sunny third quarter. Funds with high costs and poor performance won’t likely fare as well as other funds this quarter. Active funds in particular have to be careful.

What can active managers do to help their fund?

Active funds are still struggling more than passive funds. The best way for active managers to help their funds is to get out there and tell their story. Share your background, objectives and processes and let investors know why you’re not concerned in the current environment. Telling your story and communicating regularly with both current and new investors is the best way to attract investors and often leads to larger inflows for funds. Regular communication is the best way for active funds to do well in this market.